Chavez's impulsive style sparks debt confusion
CARACAS: Venezuelan President Hugo Chavez this week showed how his impulsive management style can backfire when he sowed confusion by vowing to leave the IMF, seemingly unaware that could trigger a massive debt default.
"Chavez spoke prematurely regarding withdrawal from the IMF, unaware of the full consequences of these actions," said ABN AMRO, one of several banks that urged a cautious approach after Chavez's announcement.
Chavez, who has long criticised the IMF as a capitalist institution in the service of Washington, slipped the unexpected announcement into a lecture on Monday and demanded the withdrawal be formalized immediately after his speech.
Two days later, Finance Minister Rodrigo Cabezas could not explain how Venezuela would quit the IMF without defaulting on as much as $21 billion of debt as investors fear.
Clauses in sovereign issues mean much of Venezuela's debt will be in technical default if it leaves the IMF, allowing investors to demand the government pay them back immediately.
Cabezas sought to reassure investors by pledging that Venezuela would continue payments and saying that no withdrawal date had been set.
Painful IMF reforms sparked days of violence in 1989, catalyzing political movements that helped bring Chavez to power a decade later.
In the past year, he has been issuing billions of dollars of international bonds, assuring investors that the Opec nation's oil income would guarantee payments.
His withdrawal announcement sent debt prices lower this week, bucking a regional trend, and Venezuela's benchmark global bond due in 2027 fell further on Thursday to yield 0.081 per cent higher at 7.247 per cent.
Chavez has wrong-footed his ministers before.
This year, he announced the takeover of power utilities, the country's main telecommunications company and huge oil projects. After these nationalisation bombshells, officials showed no clear implementation plan and even Chavez supporters complained about the shock that caused the Caracas stock exchange to lose a fifth of its value in one day.
In one telling exchange, Chavez rebuked a minister on live television for failing to implement his decisions more quickly, demanding to know why the telephone company was not yet in state hands.
Many voters find Chavez's spontaneity attractive. The former soldier laces his hours-long speeches with songs, jokes and anecdotes and acknowledges he tends to shoots from the hip.
He said he could not stop himself last year when he called US President George W Bush the devil in a UN speech that many diplomats say cost him a seat on the Security Council.
Although Chavez has a brawling political style and is famed for not retreating, he also has a knack of getting out of holes.
Chavez fiercely criticised Brazilian-US plans to promote ethanol production. But after weeks of controversy, he salvaged a compromise with his South American neighbor and ally, praising Brazilian ethanol from sugar, while condemning US corn-based ethanol for eating up land.
Just as he defused that dispute, some analysts predicted Chavez could yet row back on his threat to withdraw from the IMF at a time when the government is looking to issue more debt.
Chavez said in speech on Thursday that Venezuela did not need the IMF, but did not directly repeat his vow to withdraw.
"I expect he is going to put this decision on freeze," said Patrick Esteruelas, an analyst with Eurasia Group in New York
"There are easy ways to compromise and allow debt obligations. He can scale back informally without severing ties."
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